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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI RAVISH SOOD & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2014-15. The appeal is directed against the order of the Commissioner of Income Tax-3, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
Model Co-op Bank Ltd.
The ground of appeal filed by the assessee reads as under:
1. The Ld. CIT(A) erred in law and facts in disallowing deduction of Rs.8,86,815/- as claimed u/s 36(1)(viia) for provision of standard assets as per the circular of RBI. This provision being as per law may be allowed.
2. The CIT(A) has not considered evidence submitted on record. 3. Briefly stated, the facts are that the assessee, a Co-operative Bank filed its return of income for the assessment year (AY) 2013-14 on 25.11.2014 declaring total income at Rs.8,49,37,390/-. In computing the income from business the assessee has reduced an amount of Rs.80,29,815/-, the break up being as under:
(i) Deduction of expenses disallowed u/s 40(i)(a) now claimed on payment basis Rs.11,43,000 (ii) Deduction u/s 36(1)(viia) Rs.68,86,815 Rs.80,29,815 During the course of assessment proceedings, the Assessing Officer (AO) noticed that the provision for doubtful debts created by the assessee is only Rs.60,00,000/- and accordingly, the deduction u/s 36(1)(viia) is required to be restricted to Rs.60,00,000/-. Thus the AO disallowed the excess claim of deduction of Rs.8,86,815/-.
In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and confirmed the above disallowance.
Model Co-op Bank Ltd.
Before us, the Ld. counsel of the assessee submits that section 36(1)(viia) does not differentiate between provision on bad assets and provision on standard assets and the deduction refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets. It is stated that the provision made for standard assets is also a part of provision of doubtful debts u/s 36(1)(viia) of the Act and the essential ingredients for allowing the deduction under the said section are (i) there must be provision made for doubtful debts, (ii) this provision must be debited to P&L account and the deduction will not exceed 7.5% of the profit shown in the P&L account during that year. The Ld. counsel further submits that the banks are governed by the Banking Regulation Act and hence the nomenclature of the provision have to be given as per the direction of the RBI Circular. It is stated that the assessee has created a provision for bad and doubtful debts which may be under different nomenclature but this will not disentitle the assessee for claiming deduction under provisions of section 36(1)(viia) of the Act. In this regard, reliance is placed by him on the order by (i) ITAT Amritsar Bench in the case of Nawanshahr Central Co-op. Bank Ltd. dated 3rd Jan. 2018, (ii) Jodhpur ITAT in the case of Nagpur Urban Co- operative Bank Ltd., (iii) ITAT Chennai ‘A’ Bench in the case of Vellore District Central Co-operative Bank Ltd. and (iv) ITAT Amritsar in Punjab Gramin Bank. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A).
Model Co-op Bank Ltd.
We have heard the rival submissions and perused the relevant materials on record. In the case of Nawanshahr Central Co-op. Bank Ltd. (supra), the Tribunal has held :
From the above provisions it can be seen that deduction u/s 36(1) (viia) of the Act is allowed in respect of provisions for bad and doubtful debts. This section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub-section (1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1) (vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1) (viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) of the Act.
Similar is the decision in M/s Punjab Gramin Bank (supra).